Washington DC, May 13, 2025 --  

The Federal Reserve's independence is under threat. Presidential meddling is bound to worsen its flaws.

When former Congressman Ron Paul published his 2009 book to "End the Fed" it was the specter of inflation that caught the ire of the libertarian firebrand. In the wake of the 2008 financial crisis, the Federal Reserve dropped interest rates to nearly zero and bailed out all kinds of dubious mortgage securities. In Paul's telling, these actions were a tax on the savings of ordinary Americans, diluting the future value of the US Dollar.

Fast forward 15 years, and we can see how the chickens came home to roost. Inflation stayed low until spiking to a high of 9.1 percent in June 2022, forcing Federal Reserve Chairman Jerome Powell to raise interest rates to over 5 percent, before inflation returned to the historic mean. But these high rates hurt real estate developers whose sales are depressed by high borrowing costs.

President Trump, the most powerful real estate developer the world has ever known, threatened to fire Jerome Powell last month if the Fed did not lower interest rates.¹ (The Fed defied Trump by holding rates steady last week.) While Trump has no legal authority to fire the Fed chairman, his words and bullying tactics have influence. More importantly, he does have the legal right to appoint the next Fed Chairman when Powell's term ends next May. In May 2026, Trump won't quite "End the Fed," but he is likely to erode its independent role.

Many suspect he might pick  former Fed governor Kevin Warsh, who supports rate cuts and other Trump policies.²  Replacing Powell with Warsh requires a vacancy at the Fed.  And while Powell's term as governor expires next May, Powell's board seat term lasts until 2028.  So in order to get a vacancy, Trump would have to pressure Powell (or other board members) to resign, or illegally fire one without cause, ensuring a protracted legal battle.

Warsh might be too independent for Trump to spend so much political capital.  Appointing an unqualified absolute loyalist (think another overly-tatted Hegseth clone) might better maximize his return.  Trump might even use the treat of this option to pressure Powell to resign in return for picking someone like Warsh who is at least qualified and maintains the appearance of Fed independence.

Whatever the failings of the Federal Reserve to manage monetary policy, it's hard to imagine it being any better under the influence of a hothead authoritarian property developer. Clearly this is not what Ron Paul had in mind when he wrote "End the Fed".

Paul, now 89, voiced his opposition to Trump's threat to fire Powell and his bullying on lowering interest rates.³ If he had his way, America's money supply wouldn't be controlled by the Fed or by an authoritarian president -- he proposed putting the U.S. Dollar back on the gold standard, something that worked well in the 19th century, but something that has little support even in Paul's octogenarian cohort.

More common reform proposals include some level of linkage of the U.S. Dollar to Bitcoin, either by an explicit peg (voiced only by Bitcoin zealots) or by adding Bitcoin to the U.S. gold reserve. After his election, Trump vowed to retain U.S. Bitcoin assets (largely from legal seizures) and his wing-nut Health and Human Services Secretary Robert F. Kennedy Jr. proposed expanding this Bitcoin stockpile during his own 2024 presidential bid.⁴

While Trump might expand the Bitcoin stockpile, it is unlikely that he would ever seek to peg that U.S. Dollar to any cryptocurrency, especially since that would mean giving up personal control of U.S. monetary policy through a loyalist puppet potentially appointed to lead the Fed next May. The entire idea of tying the U.S. Dollar to Bitcoin is a even more silly than tying it to gold, since the total value of all Bitcoins is just $2 trillion compared with $20 trillion of U.S. Dollars by the M2 measure of the money supply.⁵ The U.S. Dollar is so widely held and used around the world, there is simply no asset class large enough to back it. Not only is the U.S. Dollar money supply larger than the value of all gold held by all central banks, it is by most accounts larger than all gold ever mined in the world.

If there is any good news for the future of an independent Federal Reserve, is that Trump has no legal right to remove and replace the seven board members, who serve fourteen year terms. Only two board members have terms that will expire through the end of Trump's legal presidency, Powell being one.

The lesson for would-be reformers like former Congressman Paul is simple: be careful what you wish for. While Paul may live to see an end of an independent Fed, any change is likely to be quite the opposite of what he intended.

Related Web Columns:

No Going Back, September 3, 2024

Dictators and Day Traders, May 14, 2024

Notes:

1. CNN, Trump wants Powell out of the Fed. Waiting in the wings is Kevin Warsh, April 18, 2025

2. Ibid.

3. Reason, Trump Doesn't Need the Fed To Fix Housing, April 30, 2025

4. Cato Institute, The “Digital Gold” Fallacy, or Why Bitcoin Can’t Save the US Dollar, Nov. 29 2024

5. Federal Reserve Bank of St. Louis, FRED Database, as posted May 13, 2025